Why is my rental calculator data so skewed?

Question

Hello everyone! I have a question about analyzing the numbers on an owner occupied multi-family. We were just watching @Brandon Turner's podcast about evaluating multi family properties and crunched some numbers. This is what we get.. where did we go wrong?

Alexander Felice · Answer

In real estate, the process concepts are simple, and easy to grasp.

However, THE DEVIL IS IN THE DETAILS, your path is correct, it's the small stuff that adds up and creates bad deals.

Buy a house-hack and use FHA to do it, this is smart (I got started this way!) but realize that if you're using an FHA loan it's likely a retail property and this will mean lower margins. With a house hack a multi you might even lose money each month as your cost-to-live unless you can find a GREAT deal.

Think about it, you're buying this big building and you not only want to live for free, but also make a profit on it. Who wouldn't love this situation? It's just hard to do!

don't give up, just keep getting better.

Mark Gauger · Answer

@Shannon H. Are the numbers above for a multi-family property where you will be owner occupying? And is the monthly rental only for what the other units will be paying? If you are analyzing a house hack as an investment, it is helpful to look at it as if you would be paying rent too. So for the above example, if that is a duplex and each side would rent out for $1100 a month, then use $2200 for your monthly rent. Then you can get an accurate picture of the investment performance in the future once you move out.

Shannon H. · Answer

@Sylvana Strawn @Mark Gauger @Henri Meli Then, I just must be really confused about real estate investing! We keep getting told that because we are first time homebuyers and eligible for FHA loans for $250,000 and make less money so we also qualify for down payment assistance programs, that we are smart to invest in real estate. Then, we decide on house hacking and doing an owner occupied multi family, people are cheering us on. But, when I try to compute what real figures look like, each have been negative or bad deals.  I was convinced it was easier to enter the market now, but I'm not too sure anymore.

Henri Meli · Answer

@Shannon H..  Based on the numbers you entered, the output looks right. Looks like you are putting very little money down. 5% down? Not every purchase is a good deal. This doesn't look like a good cashflowing deal at all. Your debt service is almost close to the rent you are getting. Are you expecting appreciation on the property? Where is this property located? I'm sure you can find better.

Mark Gauger · Answer

If your purchase price, repair cost, ARV, and monthly rent numbers are correct, then this is just a terrible deal. Paying retail prices off the MLS is not going to be a deal that cash flows in most markets, even on a 30 year mortgage. In order to make this cash flow, you would need to drop the purchase price a lot. So much so that if you were actually able to buy at that price, you would probably be better off flipping instead of holding as rent of only $1100 seems very low for a $200k house.

Sylvana Strawn · Answer

Just don't buy it: the rent is less than the monthly expense.

Why is my rental calculator data so skewed?

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